Rs 17,000-crore TCS share buyback sees nearly seven times tendering

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Investors tendered nearly seven times more shares in the Rs 17,000 crore buyback programme of Tata Consultancy Services (TCS) than what the country’s largest software exporter intended to repurchase.


Data provided by stock exchanges showed the tendering of nearly 269 million shares by TCS shareholders, as against the maximum 40.1 million shares (1.12 per cent equity) it intended to buy.


Market observers said that, given the premium on offer, shareholders tendered more shares than they were eligible for, hoping that a higher quantity would get accepted in case of undersubscription.


Shares of TCS last closed at Rs 3,617, up 0.4 per cent. TCS fixed the price at Rs 4,150 per share — nearly 15 per cent higher than the last close — for the tender route buyback.


Those who held shares of TCS as of the record date of November 25 were eligible to tender their shares in the buyback. Several retail investors had purchased TCS shares ahead of the record date to pocket the arbitrage gains on offer.

Industry players said the acceptance ratio for retail investors — those holding shares worth less than Rs 2 lakh — was about 28 per cent.


According to Securities and Exchange Board of India rules, 15 per cent of the buyback size has to be reserved for retail investors. As a result, the acceptance ratio for them is higher.


During TCS’ largest-ever Rs 18,000 crore buyback in 2022, the acceptance ratio for retail investors was between 14 per cent and 21 per cent, and for the general category, it was between 1 per cent and 8 per cent, according to IIFL data.


Over the years, the acceptance ratio has been dropping, which analysts say is due to more opportunistic investors lapping up shares ahead of buybacks to cash in on arbitrage opportunities.


In 2017 and 2018, the acceptance ratio for retail was 100 per cent. In other words, all the shares tendered by retail investors in those two buybacks were accepted by the company. The acceptance ratio for the general category was also relatively higher.


Last month, parent Tata Sons announced that it planned to tender 29.6 million shares in the buyback. If all the shares are accepted, Tata Sons will be able to mop up Rs 12,284 crore — nearly three-fourths of the buyback amount. At the end of the July-September quarter, the promoter holding in TCS stood at 72.3 per cent.


Between 2017 and 2022, TCS has completed four buybacks worth Rs 66,000 crore. Tata Sons has tendered its shares in all four buybacks worth Rs 41,895 crore, according to a recent regulatory filing.


Over the past few years, cash-rich companies with high promoter holdings have preferred buybacks over dividends for returning excess cash to their shareholders. Tax experts say buybacks are more tax-efficient from a shareholders’ point of view, as dividends are taxed in line with personal income-tax slab rates.